Introduction
In order to approach the question above, it is important to fully understand the economic phenomena of Specialization and Diversification, how do they apply to the city of London and why.
While “Economic diversification is the process of structural transformation as resources are shifted out of primary sectors into secondary sectors” (Siegel B., Johnson T. 1995), this definition is only partially appropriate for our argument. Diversification involves the development and transformation of a variety of economic activities as opposed to the overwhelming development of a core strategic economic activity under Specialization. Under this context, the more diversified an economic system, the more competitive and resilient towards external factors it becomes. Perhaps “the most straightforward argument for the importance of diversification is that diversified economies are less vulnerable to economic shocks than specialized economies” (Kaulich F. 2012).
On the other hand it is also true that in a globalized world, economic systems that specialize in the production of goods in which they have strong comparative advantages gain great benefits. A good example to support this statement is the case of London itself.
We consider London as a successful case of economic specialization for the key role that it plays in the world economy as an international financial centre and business hub. Looking at either the employment share and GVA, the service sector is predominant in the
In place of tall, high-density towers, suggestions have been made by some heritage groups for the construction of a greater number of smaller and more compact high-density buildings. Even though smaller buildings would help to preserve the views of London's major landmarks, they would not be built in the best interest of the city. Since there is a lack of available land in the city and low rise, high-density complexes require more land than tall, high-density towers, the only way to construct these developments would be to expand outward. An outward expansion would not only be expensive, requiring a development of infrastructure in those areas strong enough to support new businesses, but almost entirely impractical due to London's poor transport system. Even though half a million London workers live in the suburbs and depend on the radial rail system that links them to the center of the city, the system as a whole is expensive, heavily congested and wasteful; it
Closely associated with the process of globalisation is the notion of ‘World cities’. World cities are those such as London, New York and Tokyo where urban function has moved beyond the national scale to become a part of the international and global system. They are centres of culture, economics, employment, tourism, transport and communications and have been referred to as the command centres of the World’s borderless economy.
The more fascinating (that is, economy) answer, relevant to a wide range of comparative issues in numerous enterprises, depends on the distinction amongst supreme and relative favourable position. In its purest shape, it's utilized as a methods for clarifying why nations participate in exchange of products and enterprises, leaving everyone happier.
If each country specializes in areas where its advantages are greatest or disadvantages are least, the gains from trade will make each country better off than it would be if it remained self-sufficient. [3]
World cities are markets for a vast range of goods and services as they are areas of massive accumulations of wealth and have extraordinary purchasing power. The importance of these cities as markets is shown by patterns of concentrated retailing in high-order consumer goods, such as clothing, jewellery, and art. Streets such as Fifth Avenue in New York are famous for their retailing of very expensive goods.
Novartis, a large multinational pharmaceutical company, recently diversified by buying Alcon, in a £24.8bn deal. Alcon is a producer of eye care products such as contact lenses. Google has diversified by investing £124m in a wind power business. To what extent is diversification the best strategy to achieve profitable growth? Justify your answer with reference to Novartis, Google and/ or other organisations that you know. (40 marks)
London is internationally recognized as a center of business, finance, media, entertainment and fashion. It has also had a global influence in politics, education, and art [2][3]. The city is a tourist destination for both domestic and
Comparative advantage in economics is when a country can produce a good at a lower opportunity cost relative to other producers. It is because of this theory that output will increase because a producers within a country specializes Countries will gain the ability to maximize their efficiency and their labor force which facilitates mass-production of products, resulting in higher profits and international trade. This is because the economies of scale reduces overall cost, by producing more units. If the two countries moved towards protectionism and attempted to become self-sufficient then the production of goods would then
The Pool of London, the stretch of the Thames that helped London become an economic powerhouse for several centuries, is largely free of the great ships it once cradled. Shipping from the continent and beyond no longer ends or begins here. Instead, mid-sized cruise ships,
Globalisation is the process by which the world is becoming increasingly interconnected as a result of massively increased trade and cultural exchange. Globalisation over the past hundred years has undoubtedly made the world more interconnected including closer societies, politics, economies, cultures and the environment. Globalisation has increased the production of goods and services. There are those who argue that globalisation creates "winners" and "losers," as some countries prosper, mainly European countries and America, whilst other countries fail to do well. For example, USA and Europe fund their own agricultural industries heavily so less economically developed
The corporate strategy of the business diversification is to create a synergy to achieve more performance under a single umbrella rather than diverse business units (SNU, 2016). A business diversification is to build the company shareholder value when the independent business units can perform under a single corporation as an umbrella organization instead of independent parents or a corporation. A diversified organization has many business units and each business units have its own business level strategy irrespective of whether they are related or not. A successful business diversification not only spreads the business risk across the diverse units but also adds a long term economic value to the company. The strategy for starting a new business is based on industry attractiveness test, the cost of entry and the better off test (Thompson, Peteraf, Gamble, and Strickland, 2016).
The history of Bristol’s economy has undertaken a change in similar fashion to economic capitals across world, namely London, yet to a smaller extent (Bassett et al 2002). The transformation of the dockland region and subsequent development from the post war period has led this paper to focus upon the financial sector. Bristol’s past follows a parallel trend of dockland manufacturing centres post World War 2 that became involved into finance because of temporal changes. Degeneration was led through the absence of new port proposals that fell through from the Labour government, leading to the rise of other economic sector to facilitate growth (Hoare 1986).The research undertaken in this paper is specified to the numerous accountancy firms scattered across the city centre (Figure 1) and narrowed to the largest four firms: PricewaterhouseCoopers (PwC – Figure 2), Ernst and Young (EY – Figure 3), KPMG (Figure 4) and Deloitte (Figure 5). The change in economic geography of Bristol can be exemplified from the expansion of these financial services to promote new functions within the economy.
The country can maximize their wealth by putting the resources in the most competitive industries. Government created comparative advantage rather than free trade because now easier moves the production processes and the machines into countries that can produce more goods (Yeager & Tuereck, 1984). However, many countries now move to new trade theory suggests the ability firms to limit the number of competitors associated with economic scale (reduction of costs with a large scale of output) (Krugman, 1992). The comparative advantage occurs when two-way trade in identical products, it will useful where economic scale is important, but it will create problem with this model. As a result, government must intervene in international trade for protection to domestic firms (Krugman, 1990)
With this come different strategies to achieve growth such as through market penetration, product development, market development and diversification. When these all are broken down in details, it becomes a clearer picture. So when it comes to market penetration it is the objective of reaching higher number of sales and having a larger share with products already existing. Out of the four strategies this is the least risky one. However, there is still some low risk because prices which are low are being used to penetrate markets and it could lead to potentially damaging price wars that reduces the profit margins of all firms in the industry. When it comes to market development, it means to sell the products already existing in a market, but to sell them in a new market, this includes exporting goods to overseas markets or selling to a new market segment. When it is about Product development it is the progress made in current existing products and then sold or even new products being sold in existing markets. For example, the launch of red bull standard, they took a product which had already been in the market before, changed it a little bit and modified it and converted into a different version and sold it in the same market where red bull standard was sold. Product development is about creating something new or modifying product into its better self to attract consumers. Moving to Diversification- it means selling unrelated goods or new products, in new markets The
The principle of comparative advantage provides a simplified theory explaining why free trade is possible, even when one country has an economic disadvantage. Both the Ricardian and Heckscher-Ohlin theories rely on fixed economic assumptions of constant return and perfect competition. However, intuitively the basic principle of business is to increase returns through innovation, improving processes and technology or increasing economies of scale. Organizations understand they control pricing and are price setters, rather than price takers as suggested by perfect competition (Krugman & Obstfeld, 2003). The idea of increasing returns and imperfect competition challenge the foundations of comparative advantage.